By Christian Stolz
St. Louis Economic Conversion Project

These are troubled times for Boeing. The loss of the Joint Strike Fighter contract, coupled with the devastating blow to commercial aviation dealt by the September 11 attacks, have left our friendly neighborhood defense contractor in a difficult situation. But fear not - Boeing is making every effort to make the best of a bad situation.

Our readers in the St. Louis area know how strongly the local press and politicians back Boeing’s efforts. We are constantly reminded that 15,000 local jobs and the influx of massive amounts of tax dollars into St. Louis depend on Boeing’s health.

In the midst of this pervasive cheerleading, few in the local community dare to question Boeing’s activities. To that end, the Conversion News is proud to present a collection of stories that won’t be featured in the company’s annual report. Whether it’s the Joint Strike Fighter (JSF), foreign weapons sales, or political influence peddling, there is always a darker side to Boeing’s methods and motives.

THE JOINT STRIKE FIGHTER: POLITICS TO THE RESCUE

Boeing’s loss of the largest defense contract in history, with an estimated value of nearly $300 billion, must have seemed like deja vu to many in the company. After all, it was the elimination of McDonnell Douglas from that competition which precipitated the 1997 merger with Boeing.

The reasons for Lockheed Martin’s securing of the contract seem fairly straightforward: they built a better plane. Pentagon officials managed to overlook Lockheed’s abysmal track record of delays and cost overruns on the F-22 Raptor project, though many suspect that Lockheed’s location - Texas, home to President Bush, House Majority Leader Dick Armey and Whip Tom DeLay - may have played a part in the decision.

In the weeks since the decision, members of Congress from the St. Louis area, notably Senators Bond and Carnahan, have worked to ensure that Lockheed share the contract with Boeing. Most recently, both Senators were reported to be tinkering with the 2002 defense appropriations bill to undermine the Pentagon’s "winner take all" acquisition strategy.

Carnahan has worked to insert a passage that compels the Pentagon to create a plan for the two companies to share the work. Bond has attempted to insert language that would require the Pentagon to study the impact on national security of the loss of one of the two major defense aerospace contractors. Meanwhile, Senator Kay Bailey Hutchison of Texas has opposed government mandated sharing of the work, for obvious reasons.

Conversely, Representative Ike Skelton has expressed a reluctance to utilize the legislative process to award a contract to a company that could not win on its own merits. There is good reason for such reluctance. The Pentagon has already examined the feasibility of splitting the contract among the competitors. Their conclusion was that such a division would delay the program by nearly a year and would require an immediate additional investment of up to $1 billion. These costs would not be recovered over the life of the program, as had been previously suggested.

It is Senator Bond’s contention that the loss of the JSF contract will eliminate Boeing from the military aircraft market, thus endangering our national security during a time of war. However, the Department of Defense shares the view recently expressed by Boeing - that work on F/A-18 and Unmanned Aerial Vehicles, combined with foreign weapons sales, will be sufficient to maintain their position in the industry. But the strongest rebuke to Bond’s "threat to national security" argument comes from the Under Secretary of Defense for Acquisitions, Pete Aldridge: "We do not feel that the events of September 11, 2001, affect this [winner take all] strategy."

KIT BOND VS. SOUTH KOREA

Readers of the St. Louis Post-Dispatch may have noticed a November 16 article in which Senator Bond informed the South Korean Minister of Defense that "very unfortunate things" could happen to U.S. - Republic of Korea (ROK) relations if Boeing is not awarded the South Korean FX contract. (I for one am shocked - shocked! - to find Bond’s name repeatedly appearing in connection with Boeing!)

The FX project is the ROK’s plan to modernize their Air Force with the purchase of 40 new aircraft, at a cost of about $4 billion. Boeing has submitted its latest version of the F-15; competitors include the French Rafale, the Eurofighter, and the Russian Su-35. This contract is vitally important for Boeing. If they win, the St. Louis F-15 line will keep running until about 2008. If they lose, the line will close. Although Boeing, along with all of our local members of Congress, claim that St. Louis needs this deal, there is much more to the story.

As with all major foreign weapons sales, this deal will include an offset package, essentially a rebate, that will return at least 70% of the purchase price to South Korea. That means that, out of the $4 billion sale, $2.8 billion will not reach our economy. These offsets will primarily be in the form of technology transfers and agreements for subcontracting with South Korean firms. Although the precise details of the offsets have not been disclosed, history teaches us that this deal is not as good as it seems for St. Louis.

A 70% offset package means that 70% of the jobs that could be done in St. Louis might instead be done in South Korea. Back in 1992, South Korea bought 120 F-16s from General Dynamics. Under the terms of that contract’s offset package, only 12 aircraft were fully produced in the United States. Thirty - six were assembled in South Korea and 72 were built entirely in South Korea.

On October 12, 2001, Boeing announced that it would agree to a $2.8 billion offset package if it won the contract. This includes South Korean production and assembly of both military and commercial aircraft, with an annual value of more than $100 million. The effects of this offset package on American jobs were not included in Boeing’s announcement. (Though a November 16 Post-Dispatch article did report that the offsets will create 30,000 jobs in South Korea!)

Also problematic is the nature of the technology transfers involved. The October 12 Boeing announcement included highlights of 29 different technology transfer projects that would enable South Korea to develop and build their own fighters by 2015. Though the issue is not mentioned here in St. Louis, in South Korea the development of an "indigenous" fighter program is actually a primary selling point for Boeing’s proposal. Assisting with the development of South Korea’s fighter program would greatly reduce the need for future Boeing sales to South Korea and would help to introduce another competitor into an already crowded defense market. Considering the impact of the offsets, all of this would be done to win a contract of limited benefit to American workers.

The technology transfers are equally worrisome from a national security standpoint. Weapons technologies have a nasty habit of being transferred from our allies to nations to which we would never consider selling weapons. Israel’s past exchanges with China are perhaps the best example of this phenomenon. The technology transfers involved in Boeing’s FX offset proposal, as well as the advanced missiles (such as the SLAM-ER, which has yet to be sold abroad) that may also be included in the deal, should be considered a very real national security risk.

One final aspect of the FX deal that merits closer attention are the reactions of the South Korean government and press. The open lobbying by U.S. government officials and the steadfast refusal of the U.S. Defense Department to approve integration of South Korea’s American weapons with European aircraft have conjured up memories of the corruption scandals that surrounded the 1992 F-16 purchase. The South Korean government has been placed in a no-win situation, as they simply cannot afford to risk offending the United States, even if one of Boeing’s competitors is better suited to meet their defense needs. The politically motivated selection of the F-15, however, could lead to resentment in the South Korean military and a backlash in the general public.

THE SUPER HORNET: NOT YOUR ORDINARY EXPORT PRODUCT

In August of this year, the Pentagon gave Boeing the green light to begin marketing its F/A-18E/F "Super Hornet" abroad. The Super Hornet is the latest version of the F/A-18 Hornet, a mainstay of U.S. naval aviation since 1983. Seven other nations currently operate the Hornet and another five are reportedly interested.

The Super Hornet entered service in the U.S. in 1999 and is slated to remain the backbone of the Navy’s air forces for more than a decade. It is one of the big three fighter programs currently underway (along with the JSF and the F-22), with an estimated 548 aircraft to be purchased by 2010, at a cost of about $40 million each.

One of the rationalizations for all three of these fighter programs is the fact that fighter jets comparable to our own are operated by dozens of countries around the world. But despite the fact that the U.S. has only taken delivery of 50 planes, foreign buyers are already lining up for the Super Hornet.

In most cases, those advanced foreign aircraft actually are our own: more than 1,500 F-15s, F-16s, and F/A-18s are in service with other countries. Even Iran has American F-14s, sold to the Shah before the 1979 revolution. Under the cover of vague terms like "interoperability" (the theory that American military equipment must be compatible with that of our allies), the U.S. is actually engaged in an arms race with itself.

And though it has yet to happen with aircraft, American soldiers have already faced American weapons, training and/or technology in battle, in places like Panama, Somalia, Haiti, Iraq, and Macedonia. Though the interested foreign nations are currently friendly, our weapons frequently outlive our friendships.

The driving force behind foreign weapons sales is the belief that our allies can encourage regional stability if they have a strong military. In reality, arms sales encourage nothing but more arms sales. For example, one potential customer for the Super Hornet is Brazil, a nation feeling pressured to upgrade their air forces in response to a pending Chilean purchase of F-16s (a deal discussed in the Spring issue of the Conversion News).

Another potential customer is Malaysia, a nation struggling to keep pace with the regional military build-up in Southeast Asia and the Pacific Rim. Senator Bond (that name again!) recently paid a visit to Malaysian politicians and military officials to extol the virtues of the new plane, a visit for which he was personally thanked by Jerry Daniels, the head of Boeing’s Military Aircraft and Missile Systems division.

And speaking of influence peddling, it’s important to remember that....

IT’S WHO YOU KNOW, NOT JUST WHO YOU BUY

According to the Center for Responsive Politics, Boeing handed out nearly $2 million in campaign contributions during the 2000 election cycle. Most of this money, however, was spent in conjunction with their commercial services, and only $364,692 was spent on donations tied to the defense industry. In contrast, Lockheed Martin gave away $2,373,535 to support their military activities, making them the most generous defense contractor in America. Perhaps Boeing decided that their collection of Washington, D.C. insiders could give them a competitive edge that money just can’t buy.

Topping Boeing’s list of power brokers is retired General John Shalikashvili, former chairman of the Joint Chiefs of Staff under President Clinton. Shalikashvili stepped down as the nation’s top military officer and joined Boeing’s Board of Directors in May 2000, filling the seat vacated by former Secretary of Defense William Perry.

Next in line is former Ambassador Thomas Pickering, Boeing’s senior vice president for international relations since January. Pickering was Under Secretary of State for Political Affairs (the number three position in the State Department) under President Clinton, and is now using his forty years of experience to generate business for Boeing with foreign governments and corporations.

In July, former Deputy Secretary of Defense Rudy de Leon joined the Boeing team as senior vice president for Washington, D.C. Operations. As Boeing’s activities in Washington do not involve the actual construction of airplanes, de Leon’s reputed skills as a political problem solver have put him in command of an army of 85 lobbyists. In the spirit of bipartisanship, former Representative Bill Paxon - once a member of the House Republican leadership - was recently brought on board to balance out de Leon, a Democrat.

After September 11 and the loss of the JSF contract knocked Boeing down, de Leon, Paxon, and the rest of the Boeing lobby squad went to work on Capital Hill.

On the commercial side, Boeing was included in a House bill limiting corporate liability for September 11, and a scheme was concocted to lease or sell civilian aircraft to the military. Under this plan, Boeing 737s would replace C-9 transport planes and aeromedical evacuation aircraft. A fleet of 767s would also be converted to surveillance planes and mobile command centers. More importantly, up to 100 additional 767s would be leased to the Air Force to replace the aging tanker fleet, at a total cost of between $16 and $20 billion. This leasing scheme is estimated to be 15 percent more expensive than the outright purchase of the planes.

The military division has their lobbyists hard at work as well. In addition to the JSF and South Korean efforts, the Pentagon is being urged to buy additional C-17 transport planes, at a cost of $150 million each. Finally, due primarily to a handful of highly publicized success stories from Kosovo and Afghanistan, Unmanned Aerial Vehicles like Boeing’s X-45 are now being touted as the key to American air superiority in the future.

Eisenhower’s warning against the influence of the military industrial complex remains unheeded fifty years after he made his famous speech. The revolving door between the Pentagon, Congress and the defense industry continues to rob Americans to finance an international arms race.

BIG CRIMES, SMALL PENALTIES

In March of this year, Boeing was fined $4 million for illegally transferring classified information concerning American surveillance aircraft. The State Department charged that Boeing, while pursuing a $1 billion contract with Australia as well as several smaller bids, unlawfully exported "technical data and defense services controlled on the United States Munitions list," and violated U.S. export restrictions on more than 100 separate instances. (Boeing is currently working with Australia on the "Wedgetail" project, which will provide four converted 737 "Airborne Early Warning and Control" aircraft.)

More recently, the former McDonnell Douglas Corporation was ordered in November to pay $2.1 million in civil penalties as part of a settlement concerning the illegal use of machine tools exported to China. The equipment was sold to a Chinese firm in 1994, under the explicit condition that they be used only for the production of civilian aircraft. Some of the tools landed instead in a factory that produces the A-5 attack aircraft and the Silkworm cruise missile.

In response, the Commerce Department filed charges in 1999, requesting a $10 million fine, the restriction of future exports and possible denial of government contracts. The amount of time that had passed between the deal’s completion and the filing of charges, however, dealt a severe setback to prosecution efforts. Because of the five year statute of limitations, one of the key figures in the investigation, former McDonnell Douglas executive Robert Hitt, could not be prosecuted. Hitt’s alleged awareness of illegal activities was an integral part of the government’s case, and the two year old case against McDonnell Douglas was settled just a few months after the charges against Hitt were dropped.

WHO’S WORKING FOR WHOM?

Each year, a small group of socially responsible Boeing shareholders introduce resolutions designed to exert a positive influence on how the company operates. At the 2001 annual meeting, shareholders voted on resolutions which:

Required the public disclosure of all information pertaining to offsets in weapons deals;

Called for the drafting of a report on Boeing’s role in the weaponization of space;

And linked executive salaries to performance in terms of social responsibility.

Needless to say, all of these measures were easily defeated.

That’s the problem with defense corporations - they will not police themselves, so the government is needed to keep them in line. But when retired politicians and generals open doors for political donors, when dubious claims of national security and thousands of jobs are used as leverage in negotiations, and when the penalties for serious crimes are no more painful than parking tickets, the government’s ability to regulate is in serious danger. That is why we, the public, need to keep the government in line.

Fortunately, our elected officials must get public approval every few years. Money and influence may have corrupted the system, but the fact is that we, as voters, do still have a small amount of power. When their jobs are in real jeopardy, even the most jaded of politicians will become pragmatic.

For more information on the St. Louis Economic Conversion Project, contact Chris Stoltz at SLECP@yahoo.com or 314-726-6406.

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